Reader Question: Should I Buy Savings Bonds in September/October 2021 or November 2021?

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Here’s a timely reader question about Series I Bonds. It’s a good question because I predict that Series I Bonds will be soon getting even more media attention soon due to an even higher inflation-linked rate.

Would it be best to wait till November 1st to purchase I bonds? You mentioned the fixed rate will probably confine at 0. but what about the semiannual inflation rate? Do u think it is likely to be more than 3.54%? I’m new to this please educate me.

Series I Bond rates react every 6 months to delayed inflation reports from the Bureau of Labor Statistics. August CPI-U was already reported in mid-September, and September CPI-U will be reported in mid-October. 5 out of 6 months of data are already in the books, leaving only one month of data left. The 12-month trailing inflation rate as of that August CPI-U update was over 5%. Therefore, unless that data contains a significant amount of deflation, we already know that the next inflation rate on Series I Bonds is going to be higher than the 3.54% from May to October 2021. I roughly estimate the range that the next inflation rate will be between as 5% to 7%. That should be enough accuracy to make a purchase timing decision, earlier than my usual practice of waiting until mid-October.

  • If you buy in September or October 2021, you will receive a total rate of 3.54% for the first six months, then the “new” (estimated 5%-7%) rate for the next 6 months, and then new rates adjusted every six months for inflation onward.
  • If you buy in November 2021, you will receive the “new” (estimated 5%-7%) rate for the first 6 months, and then new rates adjusted every six months for inflation onward.

The takeaway is that either way, you will earn the “new” rate (estimated 5%-7%) eventually. If you buy in September/October, you’ll just have to wait a bit due to the staggered structure. Given that the current rate of 3.54% is still a higher interest rate than nearly any other savings account or CD is paying, I would personally just invest now if I had the cash ready and waiting. Also remember that Series I Bonds do not allow early withdrawals within the first 12 months after purchase date. As long as you complete your purchase by the end of September, it will count as purchased in September 2021 and you will be able to withdraw as of September 1st, 2022 (though subject to a penalty if held less than 5 years). It may take a little bit to set up your TreasuryDirect account, and it may take a couple business days for the withdrawal and purchase to process, so I wouldn’t wait until the last day.

Annual purchase limits. The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. You can only buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

As noted in my previous savings bond posts, these Series I bonds are a unique investment opportunity in that they are only available to individuals and are subject to purchase limits. Even if the real yield (fixed rate) is set at zero, that is still significantly higher than that of TIPS that trade on the open market (well negative across the board!). If institutional investors like pension funds or endowments could buy I bonds like you and me, they would buying billions of them.

I plan to purchase up to my annual purchase limit for 2021 as part of my asset allocation to inflation-linked bonds, although you can start with as little as $25. I guarantee that there will be many more articles about Series I bonds in mainstream personal finance sites in November after the new rate is officially announced.

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Comments

  1. Read more about this on TipsWatch blog hes got a great write up on I bonds and the coming rate increase. Im definitely going to be buying when the rate goes up.

  2. So if I bought in May, will I be getting 3.54 May-November and the new rate will kick in December-May? I guess I missed the memo on how that works when I did my research.

  3. Thanks for the update! I had better dig up my Treasury Direct account information in preparation for buying because it has been too long.

  4. Thank you, Jonathan.

    Are you buying now or later with the new rate?

  5. How much is early withdrawal after a year hold ?

  6. Thank you for bringing the rate increase up! I’ll buy once the rate goes up.

    But I do have a couple of questions about I Bonds.

    1. How can you see the current rate on your existing holdings?

    2. This is more of a general observation than a question. I purchased in April 2017 so about 4.5 years holding at the moment. Current value showing $10876 which is less than 2% APY overall. Not terrible considering the current situation with interest rates but nothing to write home about either.

    • 1. It should show it clearly under the current holdings at TreasuryDirect. Keep selecting and clicking submit; it may take a few screens to dig deep enough.

      2. I agree, this is a safe cash-alternative that pays interest linked to inflation. So part of your benefit is that inflation insurance, which may or may not not pay off. I used TIPS/I bonds as about 1/3rd of my bond allocation. Depending on your age and risk tolerance, this might only be 5% of your portfolio or less. I’m also much closer to retirement than traditional paths, so I invest more like a 65-year-old than my actual age and thus own more bonds 🙂

    • Jason Boxman says

      I’ve wondered about this myself. I haven’t cashed any of mine in for a penalty to chase higher returns elsewhere. I’ve thought of it more as a cash equivalent with a one year period before ripening. For all of my bonds purchased at about the same time, my return comes to:

      ROI 6.62%
      Annualized ROI 1.91%
      Investment Length 3.39 years

      So not stellar, but also not the objective. The fixed rates on these haven’t been amazing in quite a while, either:

      https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

      This is a good opportunity to pick up some more though, up to the limit, so I think I’m in! Thanks!

  7. I tried opening Treasury Direct Account, but they wanted me to sign an authorization from to verify my identity with signature guarantee or medallion. The banks I went to won’t do the medallion w/o dollar amount associated and couldn’t fulfill my request. Anyone know of the best way of doing this?

    • I would ask a local credit union if they do medallion signature guarantees for members. If you aren’t a member of any, it may be worth opening an account and maintaining a small share savings account for such things like signature guarantee or notary access. Many offer some other good perks too.

      • Thanks Jonathan, but my local credit union said as per policy they can’t do it when there is no dollar value, they want proof of purchase or a statement. My bank said the same thing.

        • The following may help navigate the signature guarantee requirement, specifically the part about the savings bond stamp? You may also want to try a megabank like Wells Fargo/BofA/Chase then as they are more likely to have experience with dealing with paper savings bonds. This is a communication from TreasuryDirect, via this thread:

          Please have the bank place their official seal on the form to certify your signature. If the financial institution does not have an official seal or stamp to use when they certify a signature, they may use the savings bond paid stamp that they normally use when cashing savings bonds for a bond owner.

          Acceptable Certifications:

          *Signature/Endorsement Guarantee Stamp
          *Medallion Stamp
          *Official Bank Seal/Stamp
          *Corporate Seal
          *Consular Seal
          *A commissioned or warrant officer of the United States Armed Forces may certify the signature.

    • I agree that these these forms are confusing. However, based on my experience, TreasuryDirect will not require a medallion signature guarantee on these forms. And rather, all you will need is bank or credit union to sign off and stamp it with their regular endorsement (or similar) stamp.

      • Thanks Pedro and Jonathan. The form definitely confused reps at my bank and credit union, even after I mentioned that medallion wasn’t required. I ended up going to BofA and they quickly gave me the endorsement signature stamp.

  8. Thanks, Jonathan!
    Appreciate the tip to get a decent rate of interest on a bond.

  9. So if I purchased a year ago and added another $10K in April 2021 I will only get 3.54% starting in November 2021and not the higher rate? I believe I am currently at 1.68% for the April 2021 investment.

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